^{Democracy & Technology Blog} Q: Will net neutrality regulation help consumers? A: No.

The most controverial item in the proposals to regulate net neutrality concern whether broadband providers should be allowed to practice “price discrimination.” Of course they should. And pro-consumer Senators should welcome it. Unfortunately, they have adopted an unrealistically narrow definition of consumer welfare and are missing the forest for the trees.
According to Senator Barbara Boxer,

Consumers will suffer if network operators are allowed to discriminate against their competitors’ use of the network by giving certain content preferential treatment (emphasis added).

Senator Byron Dorgan makes a similar point:

Consumers have an expectation that all websites and services will work equally well when they access the internet, just as they do when they make a phone call, but network operators have become increasingly interested in acting as gatekeepers on the internet and providing faster delivery for only certain information of their choosing (emphasis added).

A definition of “preferential treatment” and “equally well” are needed. Boxer, Dorgan and others of course want to make it illegal for broadband providers to block or degrade access, but that is only a small part of the agenda and not what they are talking about here. The idea is that, absent net neutrality regulation, content providers could be given the option of paying for different levels of service. Consumers could see differences in the speed or reliability of Internet services depending on whether the content provider chose to pay for premium service. In most cases, the content provider will offer basic or premium service to the consumer just like online and catalog retailers offer standard or overnight shipping. This really doesn’t hurt anyone.
The content providers most alarmed by all of this are the ones who collect millions or billions of dollars in advertising revenue. What would stop a broadband provider from charging for premium service based on a content provider’s ability to pay? Nothing.
Is it bad for consumers?
Price discrimination is what allows airlines to stick it to business travelers and offer really low fares to leisure travelers. It also allows telephone companies to overcharge commercial accounts and undercharge residential subscribers. In both cases, the people with deep pockets subsidize everyone else. In an excellent op-ed earlier this month in the New York Times, Cornell University Professor Robert H. Frank argued that price discrimination benefits everyone — including the customers who pay the highest prices.
The same thing ought to happen in broadband. Let the broadband providers charge content providers higher prices so they can charge consumers less. It is argued, correctly, that a market must be competitive for prices to fall. But prices are falling and/or services improving where AT&T and Verizon are offering video and broadband services in competition with the cable operators. To argue that this market is not competitive is to ignore reality.
Should the government ensure that online advertising revenues flow into the pockets of content providers, or should it allow the market to determine the best way to allocate this resource? That’s what the net neutrality fuss is all about. Advertising revenues support both content and delivery in other media, enabling providers to charge consumers little or nothing. An analysis of the consumer interest ought to take this into account.
See: “How Much Is That Laptop? It Depends on the Color of the Case. And That’s Fair,” by Robert H. Frank, New York Times, Jul. 6, 2006 ($)